‘Hire’ Expectations

After a long, tough slog through the most challenging economy in recent memory, a second straight year of positive hiring and compensation trends among credit unions reflects cautious optimism in the overall business climate.

Those trends also indicate a strategic emphasis on rewarding and retaining top performers in an increasingly competitive labor market.

“There’s still some uncertainty about the economic recovery and whether or not it’s sustainable for the long term, but these statistics are encouraging,” says Beth Soltis, CUNA’s senior research analyst, about the findings of the 2013-2014 CUNA Staff Salary Report.

Most credit unions (81%) gave pay increases to nonmanagement staff in 2012. And 75% of credit unions gave pay increases to CEOs and managers in 2012. Those numbers look similar for 2013.

Credit unions budgeted pay increases of about 2.6% for management and 2.5% for nonmanagement staff for 2013. Looking ahead to 2014, credit unions project raises of about 2.3%.

Meanwhile, wage freezes, which became commonplace during the recession, continue to recede. Just less than 30% of credit unions intend to initiate wage freezes for at least some employees—down from 45% in back-to-back years at the height of the recession, but still well above the 15-year historical average preceding the recession.

With competition among top employers in its area intensifying, $1.5 billion asset United Federal Credit Union in St. Joseph, Mich., kicked off a three-year plan to become a market leader in terms of compensation.

The credit union developed more competitive compensation strategies, which resulted in an overall 2013 salary budget increase of 5%. That allowed the credit union to elevate high performers who were low in the salary ranges.

“Learning agility is key,” says Cindy Swigert, chief human resources officer at United Federal and secretary/ treasurer of the CUNA Human Resource/Training & Development Council. “We want people who, when thrust into new roles, can learn on the fly and handle new situations with minimum risk and noise. I’m not saying experience isn’t valuable, but in these days of rapid change, experience alone doesn’t get you there.”

To remain competitive in the battle for top talent, Soltis recommends regularly reviewing and adjusting your salary ranges. This helps your credit union account for the overall increase in hiring and the growing demand for specialized skills, especially among positions requiring information technology and accounting skills.

About 40% of credit unions have formal salary ranges. Nearly 90% of credit unions with assets of more than $100 million have formal salary ranges, and about one-third of those adjusted them in the first quarter of 2013. Credit unions are expected to increase formal salary ranges 1.8% on average this year.

“I’d encourage credit unions to use the full salary range for both high and low performers,” says Chris Cardwell, principal of Cardwell Consulting, which advises a variety of organizations about compensation and rewards strategies. “It sends a strong message to both groups.”

NEXT: Hiring plans

Hiring plans

One-third of credit unions intend to hire full- or parttime staff this year. One-quarter plan to add both—up from 20% in 2011 and 2012. Those figures rise dramatically with asset size, from 5% of credit unions with less than $20 million in assets to 80% of credit unions with more than $500 million in assets.

Credit unions that plan to hire expect to add an average 4.4 full-time employees and 2.2 part-time employees in the coming year. The larger credit unions expect to add an average 15 employees this year (full- and part-time combined). Only 5% of credit unions plan to reduce staff this year.

“The hiring trend is positive, and I think it’s going to continue that way for a while,” Cardwell says.

Maine Savings Federal Credit Union is part of that upswing. The $254 million asset credit union in Hampden, Maine, navigated the recession in good shape. It avoided layoffs and wage freezes while awarding healthy performance increases.

“We’ve been able to recognize and reward our employees pretty consistently in the 3% range, on average,” says Rob Carmichael, senior vice president of human resources, training, and development for Maine Savings Federal.

During that time, the credit union invested in technology upgrades to broaden its products and services. But senior management tabled any hiring discussions until this year. Thanks to a surge in mortgages locally and an improving economy nationally, the credit union has decided to add staff for its new branch and to bolster specific initiatives.

“We feel the momentum of things going well in the economy,” says Carmichael, a member of the CUNA HR/TD Council’s executive committee.

Retention efforts

The number of jobs available nationally has been hovering around 3.8 million this year— nearly double the number of available jobs during the depths of the recession, according to the U.S. Bureau of Labor Statistics. With more options available to them, employees are more likely to voluntarily leave their jobs to pursue greener pastures.

Credit unions aren’t immune to employee departures. Despite a respectable 10% turnover rate in recent years, stagnant wages and heavier workloads have lowered employee job-satisfaction and engagement levels, Soltis says. And older employees will be exiting the workforce in greater numbers aft er putting off retirement during the recession.

“I think credit unions should definitely have their antennae up on turnover and retirement trends,” Cardwell says.

With the pool of available labor drying up—and demand for specialized knowledge rising due to leaner staffing and ever-growing regulatory demands—credit unions that routinely look within the industry to fill positions will set off a domino effect.

“There’s a war for top talent out there,” Swigert says. Experts recommend focusing your retention efforts on employees who have in-demand skills and high performance levels. Maine Savings Federal, for example, will review its compensation structure for tellers aft er three departures in recent months.

“You might have an employee in a position that’s easy to replace in terms of skills,” says Soltis, “but that person might be difficult to replace because he or she is efficient, motivated, and shows initiative—someone who has the potential to move up in your organization,” Soltis says.

Turnover is expensive. The old rule of thumb put the direct and indirect costs of hiring new employees at 50% of their annual salary, according to Swigert. But with greater expertise required for almost all positions, the most recent rule of thumb is more like two times an employee’s annual salary, she says.

Many credit unions have a “corporate culture” that contributes to an employee-friendly place to work, and that shouldn’t be underestimated for the role it plays in reducing turnover, Cardwell says. “For many people, career development and worklife balance are more important than pay,” Soltis says.

NEXT: Pay for performance

Resources

In addition to career development opportunities and work-life balance, money remains a critical factor. There are several ways to structure financial rewards to encourage and reward strong performance, which builds loyalty and engagement among your top performers.

About one-quarter of credit unions overall—and 80% of those with assets of $1 billion or more— employ formal systems to differentiate salary and wage increases based on individual performance levels, primarily for nonmanagement employees.

Compensation experts say these performance-based systems succeed only if nonperformers receive minimal or no pay increases. “You need at least a two-percentage- point gap between the low performers and high performers to motivate the low performers,” says Soltis.

United Federal initiated a skills-based pay program for its member-service advisers. New hires must move up from bronze to silver to make the grade, and can work toward gold or platinum status based on periodic assessments and annual recertification of demonstrable skills. At the platinum level, which pays 125% of market rate, employees must complete projects based on community involvement, product and service knowledge, or they must come up with ideas that improve internal processes.

“Those are the types of people we want to attract— the ones who want to learn. That’s the workforce of tomorrow,” says United Federal’s Swigert, noting the program also provides clarity on career advancement. “Someone choosing to stop their progression at the silver level is going to better understand why they weren’t selected for the assistant branch manager’s job.”

“In this job market, you have an opportunity to turn over poor performers, and go out and find really strong performers who are looking for another job,” Cardwell says. “That’s desirable turnover in my book.”

Incentives and bonuses

Variable pay continues to be a popular way to reward employees without increasing fixed costs. Overall, 66% of credit unions with at least one full-time employee offer incentives and/or bonuses to their full-time employees.

“You’re going to get a lot more performance impact out of an incentive plan than a salary increase, as long as your salaries are fair,” Cardwell says. “And there’s a lot of value in having incentive compensation because it’s a variable piece of the total compensation package— if they don’t perform and reach their goals, you don’t pay it.”

Bonuses—after-the-fact recognition of a job well done—continue to be the most common form of variable pay among credit unions. Overall, 55% of credit unions provided bonuses in 2012, with 54% of those bonuses going to management and 48% to nonmanagement staff.

The prevalence of variable pay—especially incentives— rises with asset size. More than 80% of credit unions with more than $50 million in assets offer variable pay. Among the largest credit unions, that figure rises to 90%.

Cardwell believes smaller credit unions would be well-served to create incentive plans even though it requires a significant effort to set, monitor, communicate, and measure the performance goals.

“It’s extremely important for credit unions to get a performance-based system in place—certainly for executives, but also for the entire organization,” says Cardwell. “It’s important for everyone to understand the credit union’s overall direction and be pushing that way as a group.”

He also believes larger credit unions should increase their payouts to be more competitive with banks. “If you look at the context of the goals that were set and what’s accomplished over a long period of time, I think incentive plans tell a positive story,” Cardwell says.